Disclose details & names of donor/purchaser of Bonds and amounts donated to political party: Top Court strikes down Electoral Bond Scheme, calls it ‘unconstitutional’
Chief Justice D.Y. Chandrachud, Justices B.R. Gavai, J.B. Pardiwala, Manoj Misra & Sanjiv Khanna [15-02-2024]

Read Order: Association for Democratic Reforms & Anr v. Union of India & Ors [SC- Writ Petition (C) No. 880 of 2017]

Tulip Kanth

New Delhi, February 15, 2024: Declaring the Electoral Bond Scheme, which introduced anonymous financial contributions to political parties, as unconstitutional, the Supreme Court has prohibited the issuance of fresh Bonds.

The petitioners had instituted proceedings under Article 32 of the Constitution challenging the constitutional validity of the Electoral Bond Scheme s. The petitioners also challenged the provisions of the Finance Act, 2017, which, among other things, amended the provisions of the Reserve Bank of India Act, 1934, the Representation of the People Act, 1951, the Income Tax Act, 1961 and the Companies Act, 2013.It was clarified in the judgment that the law relating to financial contributions to political parties focusses on contributions by corporate entities, disclosure of information on contributions and income tax exemptions for donations.

The issues before the Bench was whether unlimited corporate funding to political parties, as envisaged by the amendment to Section 182(1) of the Companies Act infringes the principle of free and fair elections and violates Article 14 of the Constitution.

Another issue was whether the non-disclosure of information on voluntary contributions to political parties under the Electoral Bond Scheme and the amendments to Section 29C of the RPA, Section 182(3) of the Companies Act and Section 13A(b) of the IT Act are violative of the right to information of citizens under Article 19(1)(a) of the Constitution.

The Constitution Bench of Chief Justice D.Y. Chandrachud, Justice B.R. Gavai, Justice J.B. Pardiwala, Justice Manoj Misra and Justice Sanjiv Khanna was of the view that the Electoral Bond Scheme is violative of Article 19(1)(a) and unconstitutional. Justice Khanna penned down a separate opinion giving a different reasoning to arrive at the same conclusion.

The Bench was of the opinion that the information about funding to a political party is essential for a voter to exercise their freedom to vote in an effective manner. The Electoral Bond Scheme and the impugned provisions to the extent that they infringe upon the right to information of the voter by anonymizing contributions through electoral bonds are violative of Article 19(1)(a).

Section 182 enables a company to contribute any amount directly or indirectly to any political party. The Finance Act 2017 made three changes to Section 182. The first proviso to Section 182(1) which prescribed a cap on corporate funding was omitted. Section 182(3) was amended to only require a disclosure of the total amount contributed to political parties by a company in a financial year and excluded the requirement to disclose the particulars of the amount contributed to each political party; and Sub-section 3A was introduced, by which a company could contribute to a political party only by a cheque, bank draft, or electronic clearing system.

As per the Bench, the right to information of the voter includes the right to information of financial contributions to a political party because of the influence of money in electoral politics (through electoral outcomes) and governmental decisions (through a seat at the table and quid pro quo arrangements between the contributor and the political party). Similarly, the right to privacy of political affiliations does not extend to contributions which may be made to influence policies. It only extends to contributions made as a genuine form of political support that the disclosure of such information would indicate their political affiliation and curb various forms of political expression and association.

“…the anonymity of the contributor is intrinsic to the Electoral Bond Scheme. The Electoral Bond is not distinguishable from other modes of contributions through the banking channels such as cheque transfer, transfer through the Electronic Clearing System or direct debit if the anonymity component of the Scheme is struck down. Thus, the Electoral Bond Scheme 2018 will also consequentially have to be struck down as unconstitutional”, the Bench opined.

The Bech asserted that the amendment to Section 182 is manifestly arbitrary for treating political contributions by companies and individuals alike, permitting the unregulated influence of companies in the governance and political process violating the principle of free and fair elections and treating contributions made by profit-making and loss-making companies to political parties alike. Further observing that the companies and individuals cannot be equated for the purpose of political contributions, the Supreme Court stated that the amendment to Section 182 is also manifestly arbitrary for not making a distinction between profit-making and loss-making companies for the purposes of political contributions.

“The exposition is that the law must not treat companies and individual contributors alike because of the variance in the degree of harm on free and fair elections”, the Bench observed.

The Top Court concluded that the Electoral Bond Scheme, the proviso to Section 29C(1) of the Representation of the People Act 1951 (as amended by Section 137 of Finance Act 2017), Section 182(3) of the Companies Act (as amended by Section 154 of the Finance Act 2017), and Section 13A(b) (as amended by Section 11 of Finance Act 2017) are violative of Article 19(1)(a) and unconstitutional. The deletion of the proviso to Section 182(1) of the Companies Act permitting unlimited corporate contributions to political parties was also held to be arbitrary and violative of Article 14.

“We direct the disclosure of information on contributions received by political parties under the Electoral Bond Scheme to give logical and complete effect to our ruling”, the Bench ordered while also enumerating following directions:

• The issuing bank shall herewith stop the issuance of Electoral Bonds.
• SBI shall submit details of the Electoral Bonds purchased since the interim order of this Court dated 12 April 2019 till date to the ECI. The details shall include the date of purchase of each Electoral Bond, the name of the purchaser of the bond and the denomination of the Electoral Bond purchased.
• SBI shall submit the details of political parties which have received contributions through Electoral Bonds since the interim order of this Court dated 12 April 2019 till date to the ECI. SBI must disclose details of each Electoral Bond encashed by political parties which shall include the date of encashment and the denomination of the Electoral Bond; d. SBI shall submit the above information to the ECI within three weeks from the date of this judgment, that is, by 6 March 2024.
• The ECI shall publish the information shared by the SBI on its official website within one week of the receipt of the information, that is, by 13 March 2024.
• Electoral Bonds which are within the validity period of fifteen days but that which have not been encashed by the political party yet shall be returned by the political party or the purchaser depending on who is in possession of the bond to the issuing bank. The issuing bank, upon the return of the valid bond, shall refund the amount to the purchaser’s account.

Justice Khanna respectfully agreed with the reasoning recorded by the Chief Justice, holding that the amendment to Section 182 of the Companies Act, deleting the first proviso thereunder should be struck down. He opined that the principle of proportionality would subsume the test of manifest arbitrariness. In addition, the claim of privacy by a corporate or a company, especially a public limited company would be on very limited grounds, restricted possibly to protect the privacy of the individuals and persons responsible for conducting the business and commerce of the company.

He concluded that the Scheme is unconstitutional and struck down the same. Further ordering that issuance of fresh Bonds would be prohibited, he also clarified that if the Bonds issued (within the validity period) are with the donor/purchaser, the donor/purchaser may return them to the authorised bank for refund of the amount. In case the Bonds (within the validity period) are with the donee/political party, the donee/political party will return the Bonds to the issuing bank, which will then refund the amount to the donor/purchaser. On failure, the amount will be credited to the Prime Ministers Relief Fund.